National Blog

Ron Paul Classic: Blame the Fed for the crash

This month marks the eight-year anniversary of the bursting of the housing bubble and the resulting stock market downturn. Following this crash, Congress passed the Emergency Economic Stabilization Act, legislation authorizing the use of taxpayer funds to bailout powerful corporations in order to, as President Bush so memorably put it, "betray the free-market in order to save it."

The atmosphere on Capitol Hill following the crash was almost as hysterical as that following September 11. In both cases, this panicked atmosphere resulted in the passage of hastily written legislation.

Sadly, but not surprisingly, the failure of the so-called "Emergency Economic Stabilization Act" to stabilize the economy did not stop Congress and the Fed from continuing on their unprecedented program of bailouts, stimulus spending, and money creation. As those who understand economics predicted, this attempt to spend-and-inflate our way to prosperity has failed miserably, although it has benefited Wall Street, the Big Banks, and well-connected crony capitalists. This is why none other than Donald Trump once said that Quantitative Easing is a "great deal for guys like me."

Of course the American people still do not know the full truth about what, if any, plans the Federal Reserve has to bailout Wall Street, the big banks, and foreign governments in the (inevitable) event of a major crash. This is why Campaign for Liberty is pushing for a Senate vote on Audit the Fed this year.

Here, and bellow, is Dr. Paul's official statement on the Emergency Economic Stabilization Act:

Mr. PAUL. Madam Speaker, I rise in strong opposition to this bill. This is only going to make the problem that much worse. The problem came about because we spent too much; we borrowed too much, and we printed too much money; we inflated too much, and we overregulated. This is all that this bill is about is more of the same. So you can't solve the problem. We are looking at a symptom. We are looking at the collapsing of a market that was unstable. It was unstable because of the way it came about. It came about because of a monopoly control of money and credit by the Federal Reserve System, and that is a natural consequence of what happens when a Federal Reserve System creates too much credit. Now, there have been a fair number of free market economists around who have predicted this would happen. Yet do we look to them for advice? No. We totally exclude them. We don't listen to them. We don't look at them. We look to the people who created the problem, and then we perpetuate the problem. The most serious mistake that could be made here today is to blame free market capitalism for this problem. This has nothing to do with free market capitalism. This has to do with a managed economy, with an inflationary system, with corporatism, and with a special interest system. It has nothing to do with the failure of free markets and capitalism. Yet we're resorting now, once again, to promoting more and more government. Long term, this is disastrous because of everything we're doing here and because of everything we've done for 6 months. We've already pumped in $700 billion. Here is another $700 billion. This is going to destroy the dollar. That's what you should be concerned about. Yes, Wall Street is in trouble. There are a lot of problems, and if we don't vote for this, there are going to be problems. Believe me: If you destroy the dollar, you're going to destroy a worldwide economy, and that's what we're on the verge of doing, and it is inevitable, if we continue this, that that's what's going to happen. It's going to be a lot more serious than what we're dealing with today. We need to get our house in order. We need more oversight--that is a certainty--but we need oversight of the Federal Reserve System, of the Exchange Stabilization Fund and of the President's Working Group on Financial Markets. Find out what they're doing. How much have they been meddling in the market?
What we're doing today is going to make things much worse. The process of this bailout reminds me of a panic-stricken swimmer thrashing in the water only making his situation worse. Even a ``bipartisan deal''--whatever that is supposed to mean--will not stop the Congress from thrashing about. The beneficiaries of the corrupt monetary system of the last 3 decades are now desperately looking for victims to stick with the bill after they have reaped decades of profit and privilege. The difficulties in our economy will continue because the legislative and the executive branches have not yet begun to address the real problems. The housing bubble's collapse, as was the dot corn bubble's collapse, was predictable and is merely a symptom of the monetary system that brought us to this point. Indeed, we do face a major crisis, but it is much bigger than the freezing up of Wall Street and dealing with worthless assets on the books of major banks. The true crisis is the pending collapse of the fiat dollar system that emerged after the breakdown of the Bretton Woods agreement in 1971. For 37 years the world built a financial system based on the dollar as the reserve currency of the world in an attempt to make the dollar serve as the new standard of value. However since 1971, the dollar has had no intrinsic value, as it is not tied to gold. The dollar is simply a fiat currency, which has fluctuated in value on a daily, if not hourly, bias. This worked to some degree until the market realized that too much debt and malinvestment existed and a correction was required. Because of our economic and military strength, compared to other countries, trust in America's currency lasted longer than deserved. This resulted in the biggest worldwide economic distortion in all of history. The problem is much bigger than the fears of a temporary decline on Wall Street if the bailout is not agreed to. Money's most important function is to serve as a means of exchange--a measurement of value. If this crucial yardstick is not stable, it becomes impossible for investors, entrepreneurs, savers, and consumers to make correct decisions; these mistakes create the bubble that must eventually be corrected. Just imagine the results if a construction company was forced to use a yardstick whose measures changed daily to construct a skyscraper. The result would be a very unstable and dangerous building. No doubt the construction company would try to cover up their fundamental problem with patchwork repairs, but no amount of patchwork can fix a building with an unstable inner structure. Eventually, the skyscraper will collapse, forcing the construction company to rebuild--hopefully this time with a stable yardstick. This $700 billion package is more patchwork repair and will prove to be money down a rat hole and will only make the dollar crisis that much worse. But what politicians are willing to say that the financial ``skyscraper''--the global financial and monetary system-is a house of cards. It is not going to happen at this juncture. They're not even talking about this. They talk only of bailouts, more monetary inflation, more special interest spending, more debt, and more regulations. There is almost no talk of the relationship of the Community Reinvestment Act, HUD, and government assisted loans to the housing bubble. And there is no talk of the oversight that is desperately needed for the Federal Reserve, the Exchange Stabilization Fund, and all the activities of the President's Working Group on financial markets. When these actions are taken we will at last know that Congress is serious about the reforms that are really needed. In conclusion, there are three good reasons why Congress should reject this legislation: It is immoral--Dumping bad debt on the innocent taxpayers is an act of theft and is wrong. It is unconstitutional--There is no constitutional authority to use government power to serve special interests. It is bad economic policy--By refusing to address the monetary system while continuing to place the burdens of the bailout on the dollar, we can be certain that in time, we will be faced with another, more severe crisis when the market figures out that there is no magic government bailout or regulation that can make a fraudulent monetary system work. Monetary reform will eventually come, but, unfortunately, Congress' actions this week make it more likely the reform will come under dire circumstances, such as the midst of a worldwide collapse of the dollar. The question then will be how much of our liberties will be sacrificed in the process. Just remember what we lost in the aftermath of 9-11. The best result we can hope for is that the economic necessity of getting our fiscal house in order will, at last, force us to give up our world empire. Without the empire we can then concentrate on rebuilding the Republic.